Elective pay and transferability frequently asked questions: Transferability

The answers to these frequently asked questions are based on final regulations that apply to taxable years that end on or after April 30, 2024. For taxable years ending prior to April 30, 2024, taxpayers must apply the temporary regulations related to the required pre-filing registration, but have the choice to apply the remainder of the rules in the final regulations or rely on the proposed regulations.

In general, Treasury and the IRS do not provide personalized tax advice regarding whether a specific organization's project or activity is eligible for a tax credit. For more information about clean energy tax credits, please see Credits and deductions under the Inflation Reduction Act of 2022. You may also choose to consult with a tax advisor.

Q1. What taxpayers are eligible to transfer tax credits? (updated April 25, 2024)

A. Eligible taxpayers can transfer eligible credits. An eligible taxpayer is a taxpayer that is not an applicable entity under section 6417(d)(1)(A). See Q1-Q9 on Elective pay eligibility for information about applicable entities. Generally, an applicable entity would include a tax-exempt organization, a State or political subdivision, a local government, an Indian tribal government, an Alaska Native Corporation, the Tennessee Valley Authority, a rural electric co-op, a U.S. territory, or an agency or instrumentality of a state, local, tribal, or territorial government.

Q2. What tax credits can I transfer? (updated April 25, 2024)

A. Any eligible taxpayer that is not an applicable entity as listed in Q1 can elect to transfer (sell) all or a portion of the following "eligible credits."

• Energy Credit (48), (Form 3468, Part VI)
• Clean Electricity Investment Credit (48E), (Form 3468, Part V)
• Renewable Electricity Production Credit (45), (Form 8835, Part II)
• Clean Electricity Production Credit (45Y)
• Zero-emission Nuclear Power Production Credit (45U), (Form 7213, Part II)
• Advanced Manufacturing Production Credit (45X), (Form 7207)
• Clean Hydrogen Production Credit (45V), (Form 7210)
• Clean Fuel Production Credit (45Z)
• Carbon Oxide Sequestration Credit (45Q), (Form 8933)
• Credit for Alternative Fuel Vehicle Refueling/Recharging Property (30C), (Part 8911, Part II)
• Qualified Advanced Energy Project Credit (48C), (Form 3468, Part III)

The amount of eligible credits an eligible taxpayer can transfer can be affected by bonus or other requirements that may apply (including the Prevailing Wage and Apprenticeship Requirements, Domestic Content Bonus, the Energy Communities Bonus, and the Low-Income Communities Bonus).

Q3. Can an eligible taxpayer transfer only a portion of an eligible credit related solely to a bonus credit amount? (updated April 25, 2024)

A. No.  While an eligible taxpayer can transfer a portion of an eligible credit, an eligible taxpayer cannot transfer a portion of an eligible credit related solely to a bonus credit amount. For example, the portion of an eligible credit related to the Domestic Context Bonus cannot be transferred separately from the rest of the eligible credit.

Q4. How can I make an election to transfer an eligible credit? (updated April 25, 2024)

A. There are several steps for transferring eligible credits (or a portion of a credit). Not all steps need to occur in the order displayed below.

1. Pursue an eligible project. Identify and pursue a project that generates one of the eligible credits.
2. Satisfy all requirements necessary to earn the eligible credit for the tax year. For example, a solar energy project would need to be placed in service prior to earning an eligible credit.
   • You will need the documentation necessary to properly substantiate any underlying tax credit, including if bonus amounts increased the credit.
3. Complete electronic pre-filing registration with the IRS. The online pre-filing registration process launched in December 2023. You may complete pre-filing registration as soon as you have all the information required, including the date the eligible credit property was placed in service. Pre-filing registration will include providing information about the eligible taxpayer, the intended eligible credit, and the eligible credit project. Upon completing this process, the IRS will provide a registration number for each eligible credit property.
   • Complete pre-filing in sufficient time to have a valid registration number at the time you file your tax return.
4. Arrange to transfer an eligible tax credit to an unrelated party in exchange for only cash.
5. Provide the transferee (i.e., buyer) with the registration number, the required minimum documentation, and any other information necessary to claim the transferred eligible credit.
6. Complete a transfer election statement with the transferee (as described in Q6 below).
7. File a timely tax return and attach your transfer election statement. File a tax return for the taxable year in which the eligible tax credit is determined indicating the eligible credit has been transferred to a third party and include the transfer election statement and other information as required by guidance. The tax return must include the registration number for the relevant eligible credit property and must be filed no later than the due date (including extensions) for such tax return.
8. If applicable, renew pre-filing registrations and file returns for each subsequent year that a transfer election is made to transfer an eligible credit related to the eligible credit property.

Q5. How can I purchase eligible credits and claim transferred eligible credits? (updated April 25, 2024)

A. To claim transferred credits.

1. Arrange to purchase an eligible credit from an unrelated party in exchange for only cash.
2. Obtain from the eligible taxpayer the registration number of the eligible credit property generating the eligible credit and all other information necessary to claim the eligible credit transferred.
3. Complete a transfer election statement with the eligible taxpayer (as described in Q6).
4. File a tax return and attach your transfer election statement. File a tax return for the taxable year in which the eligible credit is taken into account by you under the rules of section 6418 and include the transfer election statement and other information as required by guidance. The tax return must include the registration number for the relevant eligible credit property.

5. Note, individuals and certain other taxpayers are subject to the passive activity rules under section 469 which may limit their ability to use transferred eligible credits against their Federal income tax liability.

Q6. What is a transfer election statement and how do I file one? (updated April 25, 2024)

A. The form and substance of a transfer election statement is as described in the guidance and generally includes the following: name, address and taxpayer identification number for both the eligible taxpayer and transferee, a description of the type and amount of the eligible tax credit transferred, the timing and amount of cash paid for the eligible tax credit transferred and the registration number related to the eligible credit property. The transfer election statement should also include certain statements and/or representations from the eligible taxpayer and transferee as described in the guidance. The transfer election statement should be attached to the eligible taxpayer's timely filed tax return for the year in which the eligible taxpayer becomes entitled to the eligible credit. The transfer election statement should also be attached to the transferee's tax return for the year in which the transferee takes the eligible credit into account.

Q7. Can I transfer only a portion of the eligible credit generated from a single eligible credit property for a given tax year? Can I transfer an eligible tax credit generated from a single eligible credit property to multiple unrelated parties in the same tax year? (updated April 25, 2024)

A. Eligible taxpayers may transfer all or a portion of an eligible credit generated from a single eligible credit property. They may also transfer portions of an eligible credit generated from a single eligible credit property to multiple unrelated parties in the same tax year.

Q8. Can I use an elective pay registration number for transferability or vice-versa? (added June 14, 2023)

A. No.

Q9. Do I need multiple registration numbers for a single eligible credit property where an eligible credit generated by it are transferred to multiple parties? (updated April 25, 2024)

A. No. You will provide the same registration number to all transferees of an eligible credit generated by the same eligible credit property.

Q10. Do I need multiple registration numbers if I transfer eligible credits related to multiple eligible credit properties? (updated April 25, 2024)

A. Separate registration numbers are generally required for each eligible credit property.  To determine whether you can “group” properties under a single registration number, check the rules of the underlying credit.

Q11. As both the eligible taxpayer and transferee of an eligible credit must include the registration number on their return, does the order in which they file their returns matter? (updated April 25, 2024)

A. The eligible taxpayer and transferee may file their returns in any order.  The transferee’s return is for the taxable year in which the eligible credit is taken into account under the rules of section 6418.  The eligible taxpayer’s return is for the taxable year in which the eligible credit is determined.

Q12. Can the transferee incorporate eligible credits in their estimated tax payments? (updated April 25, 2024)

A. Yes. A transferee may take into account an eligible credit that it has purchased, or intends to purchase, when calculating its estimated tax payments, though the transferee taxpayer remains liable for any additions to tax in accordance with sections 6654 and 6655 to the extent the transferee taxpayer has an underpayment of estimated tax.  The appropriateness of a transferee taxpayer taking the eligible credit into account for purposes of determining its quarterly estimated tax liability depends on the facts and circumstances.  Because section 6418 generally contemplates a transferee taxpayer effectively stepping in the shoes of the eligible taxpayer, it follows that a transferee can take into account the eligible credit for purposes of determining its quarterly estimated tax liability no earlier than the eligible taxpayer.  

Q13. In the case of eligible credits that have been transferred, who bears the financial responsibility for a subsequent recapture event? (updated April 25, 2024)

A. For transferred eligible credits under sections 48, 48E or 48C or transferred carbon sequestration tax credits under section 45Q, or section 49(b) recapture, the transferee bears the financial responsibility for a recapture event and is required to recapture an amount of previously claimed tax credits based on the timing and amount of the recapture event. However, recapture liability applies proportionately to an eligible taxpayer and any transferee taxpayers to the extent an eligible taxpayer has retained eligible credits. The eligible taxpayer is required to notify the transferee if a recapture event occurs. 

Q14. Can the transferee of an eligible credit claim tax depreciation associated with the project? (added June 14, 2023)

A. No. Only a taxpayer that has an ownership interest in the project may claim tax depreciation. Transferability does not allow depreciation benefits to be transferred.

Q15. Can individuals, estates and trusts, closely held C corporations or personal service corporations purchase and claim credits through transferability? (added April 25, 2024)

A. Yes, but these types of taxpayers will be subject to the passive activity rules for any purchased credits. Generally, this means they can only use purchased credits to offset passive income tax liability. Most taxpayers do not have passive income tax liability as it generally does not include tax liability arising from most investment activities. Taxpayers that are considering purchasing credits under section 6418 should consult a professional tax advisor to understand how the limitations under the passive activity rules, and other portions of the tax Code, may or may not apply to their particular tax situation and the tax risks involved.

Q16. Can an eligible taxpayer make a transfer election for a section 45X credit determined with respect to a facility when that eligible taxpayer has made an election to be treated as an applicable entity and an elective payment election for a section 45X credit determined with respect to a different facility? (added April 25, 2024)

A: Yes. An eligible taxpayer can make a transfer election for a section 45X credit determined with respect to a facility on an independent basis. This is also true for a section 45V or section 45Q credit determined with respect to a facility or component of carbon capture equipment within a single process train, respectively. Sections 45Q, 45V, and 45X credits are the three credits that an eligible taxpayer can choose between making an elective pay election or a transfer election.